What are some of the important details of the One to Four Family Residential Contract (Resale)?

The following is a guide to some common questions. A client should always confer with their Realtor® to develop and understanding of the contract terms, obligations, deadlines, and costs. Anything not easily understandable should be examined and explained by a licensed Attorney.

What is the “Effective Date” of the contract?

Realtors® can confer with one another to ensure the proper effective date is written.
When is the effective date? The effective date is the date of “final acceptance.” Final acceptance means the day the last party to accept (sign) the contract communicates this acceptance to the other party or that party’s agent. Page 8 of the contract contains a box to insert the date the parties execute the contract, which is called the effective date.

The contract is still binding on the parties even if a broker doesn’t fill in the effective date.
The effective date is the most crucial date in the contract because it’s the day the contract officially binds the parties to the agreed-upon terms and it’s the date from which performance periods within the contract are measured.

How are time periods and deadlines calculated?

Most periods of performance in the One to Four Family Residential Contract (Resale) are written as “within X days after the Effective Date.” This means Day 1 of the performance period would be the first day after the effective date. The effective date should be considered “Day Zero.” To determine a particular deadline, start with the day after the effective date as Day 1, and continue counting until you reach the number of negotiated days for that deadline.

What is the “Property”?

Paragraph 2 of the contract defines what “Property” the seller is selling to the buyer. According to the contract, the seller is conveying “the land, improvements and accessories.” If a seller is willing to convey personal property, such as a refrigerator listed in the MLS, the personal property must be included in the contract to be binding on the seller. A seller’s personal property can be conveyed using the Non-Realty Items Addendum to Contract.

What is considered an improvement?

Essentially, improvements include anything attached to the land. The house, garage, and all other “fixtures” and improvements attached to the real property. The contract lists several items that may be considered “improvements,” however, the items must be “permanently installed and built-in” for them to automatically convey to the buyers.

What is considered permanently installed and built-in?

Whether a particular item on a property is “permanently installed and built-in” is a factual issue determined on a case-by-case basis. There is no universal rule that states a particular item, such as a security system, is always permanently installed and built-in.

What is considered a fixture?

A fixture is an item that began its life as personal property, but was then attached to the real property in such a manner that it became part of the real property. Therefore, when sellers convey their real property, they are also conveying the fixture along with it. Unfortunately, what is or is not a fixture is not a simple question to answer. Texas courts look at three factors to determine if an item is a fixture:

1. Did the party that installed the item intend the item to become a permanent part of the real property (intent)?

2. Was there a real annexation of the item to the real property (attachment)?

3. Was the item adapted to the uses or purposes of the real property (customization)?

Buyers and sellers should discuss any questionable items before executing a contract, so that all parties have the same understanding as to what items will stay with the property and which items the sellers will take with them.

What is considered an accessory?

Accessories do not have to be permanently installed. All the items listed under Accessories are conveyed to the buyer as part of the property under the contract. Garage openers, pool equipment, fireplace logs, are common accessories.

What is an exclusion?

If a seller intends to keep an item that would normally convey to a buyer, such as fixtures and improvements, the item must be listed as an “exclusion” under paragraph 2D, otherwise, it will convey to the buyer as part of the property. Anything unclear should be listed as an exclusion.

How do the Termination Option and Repair Amendments work together?

Under Paragraph 23, Termination Option, buyers may pay a fee for the unrestricted right to terminate the contract within a negotiated number of days. The option fee must be paid to the sellers—not to the title company—within three days after the effective date. Often this is called the option period. A buyer is not in default of the contract for failure to pay the option fee. The only penalty for not paying the option fee is that the buyer doesn’t have the option to terminate.

The buyers’ right to terminate the contract ends on the last day of the option period at 5 p.m. local time where the property is located. This is the only deadline in the entire contract that has an actual time of day for performance. For all other deadlines, a party would have until the end of the day (11:59 p.m.) to perform.

During the option period the buyer may often evaluate the condition of the property and negotiate a repair amendment.

What is a repair amendment?

Since the contract is an “As Is” contract, the seller only has to make repairs to the property that they agree to either within the contract or after it’s executed with an amendment. If buyers are going to request seller make repairs during the option period, buyer’s agents should not wait until the last day of the option period to submit an amendment.

A repair amendment is not binding on the sellers until sellers sign it. The termination deadline is not automatically extended just because the buyers and sellers began repair amendment negotiations before the deadline. If the sellers haven’t signed the amendment by the last day of the buyers’ option period, the buyers must either send notice of termination by 5 p.m. local time where the property is located or remain in the contract without the sellers agreeing to make any repairs.

What can REALTORS® write in Paragraph 11, Special Provisions?

The short answer? Very little. The purpose is to disclose factual statements and business details. If clients absolutely want or need special terms to be written into their contract, an attorney should be consulted. Both The Real Estate License Act and the REALTOR® Code of Ethics prohibit REALTORS® from engaging in the unauthorized practice of law. Unless also a licensed attorney, agents, and brokers are crossing the line into the unauthorized practice of law by preparing or drafting a legal document or language for their clients.

Notice: This website contains general information about possible legal and financial matters. The information is not advice, and should not be treated as such. You must not rely on the information on this website as an alternative to legal or financial advice from your attorney, accountant, or other professional legal services provider. If you have any specific questions about any legal and financial matter you should consult your attorney, accountant, or other professional legal services provider

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